I'm looking for an excel example (not a copy of Dupire's eqn) of how to convert an IV surface to a local vol surface. If unsuccessful I'll work through Dupire's eqn but would be helpful to look at an ...

I have seen plenty of literature about GARCH on estimation volatility. how about covariance? There are plenty of risk models depending on the covariance matrix.
I guess we can assume the correlation ...

Some price exotics with stochastic vol, some use other models such as local vol.
What is the impact/advantage/disadvantage of using stochastic volatility in the current market environment?
In other ...

It is well known that the theta of call option is always negative. Also, the theta of (at the money call option) goes to infinity as the time approaches to the maturity. On the other hands, (ITM and ...

Would anyone have a code (pref. Matlab or R) for any type of estimation (QML, GMM) not using option prices of a stochastic volatility model driven by a CIR process described below?
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...

Historically stocks have a higher likelihood to increase in price than to fall in price. As such would it make sense to split a stocks volatility measurement into upward and downward components?
For ...

I wonder if I first filter out AR(1) (autoregressive model with lag 1) effects from univariate time series and then fit stochastic volatility model does above procedure introduce any bias at first or ...

I am trying to calculate the delta of an option at different strike prices where the underlying has a pronounced implied volatility skew in order to correctly hedge an options strategy.
Researching ...

I would like to learn more about the SABR model and ho it is used in modeling smiles in equity, FX and rates markets.
How would you explain the process and its implementation in simple steps? Any web ...

I am working on a model for stochastic volatility. In short, the model try to capture that the volatility goes up suddenly after a shock (war, policy, financial events, etc) and then goes down slowly, ...

I am confused on the following:
When we price swaption, the market convention is to use Black's Model which assumes forward swap rate is following Black's model under the Q(t) measure.
When we tries ...

I understand that Stochastic Vol Models should be used when Exotic Option payoff is Volatility dependent (such as Variance Swaps and Volatility Swaps).
Stochastic Vol Models should also be used when ...

In terms of Merton credit risk model need to find the initial value of counterparty's assets and the volatility of the assets. Both value are not directly observable thus we have to approximate them ...

Has anyone ever formally proved that Markets are incomplete under the stochastic volatility model?
I know that if there are more random sources than traded assets, then the market is incomplete but ...

What is the condition for underlying stochastic volatility processes to give a consistent covariance matrix?
I read in Hull that in order to have a consistent covariance matrix, volatility parameters ...

Summary
For Heston model parameters that render the variance process constant, the solution should revert to plain Black-Scholes. Closed from solutions to the Heston model don't seem to do this, even ...

In my (limited) understanding, the behavior of a stock price can be modeled using Geometric Brownian Motion (GBM). According to the Hull book I'm currently reading, the discrete-time version of this ...

I see the Generalized Method of Moments suggested in numerous academic papers as a way to calibrate stochastic volatility models. However, any decent trading shop is going to calibrate to observable ...